Indian cement and engineering conglomerate Larsen & Toubro Ltd on Tuesday announced the demerger of its cement business into a separate company in a move which it said will help it focus on engineering and technology.

L&T, India's biggest cement maker, will have a 20 per cent equity stake in the demerged company and the rest of the stock will be distributed to L&T's shareholders in proportion to their holdings, a statement from the conglomerate said.

The proposal has been approved by L&T's board and is subject to approvals from regulatory authorities and shareholders, it said.

Diversified Grasim Industries, India's third-largest cement maker, had agreed to buy an 8.5 per cent stake in the demerged cement company at Rs 171.30 per share, the L&T statement said.

Grasim is part of the diversified Aditya Birla Group of companies and also makes viscose staple fibre, textiles and sponge iron.

Grasim will follow up this stake purchase with an open offer to purchase an additional 30 per cent stake in the demerged cement company, the statement said.

India is the world's second-biggest consumer of cement, after China.

Grasim had agreed to sell its entire shareholding in the demerged L&T at Rs 120 per share to L&T Foundation/Trusts, which are being set up, it said.

A Grasim official said that the company held around 16 percent in L&T.

Ahead of the announcement, Grasim shares rose 4.6 percent to Rs 406.20 at the Bombay Stock Exchange whose main index climbed 2.83 per cent.

L&T firmed 1.4 per cent to Rs 239.45.